How do Firms React to Natural Disaster Events? An Analysis of Abnormal Performance during Exogenous Shocks

Abstract

This thesis explores two questions. First, we examine the impact of relatively rare, yet economically destructive natural disaster events. Using hurricane data from EM-DAT and financial data from CRSP/Compustat, we evaluate the link between exogenous event shocks and company financial performance. We measure effects in periods that have not been utilized in previous research, extending upon the related literature. Second, we attempt to understand the role that experience plays when these shocks are repeated. We accomplish this by comparing two major hurricane events with analogous characteristics that have affected similar regions and companies. The impact of hurricanes on financial performance appears to be minimal, yet visible in the time immediately following an event shock. As is consistent with the literature, we notice that hurricanes are complex events that are difficult to isolate. We see this through varied effects between hurricane events. There is limited evidence that experience affects company returns, necessitating continued research on this question.